FORUM: Enforcement of foreign judgments
October 2014 | SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION
Financier Worldwide Magazine
FW moderates a discussion on enforcing foreign judgments between Doug Jones at Clayton Utz, Ozan Akyurek at Jones Day, Jason Woodland at Peters & Peters, and Tatiana Menshenina at Simmons & Simmons.
FW: What hurdles do parties regularly face when attempting to enforce a judgment or award in another jurisdiction? What are the main grounds on which such judgments or awards are usually challenged in other jurisdictions?
Menshenina: The most common problems faced by parties attempting to enforce a judgment or award in another jurisdiction are objections based on the public policy of the jurisdiction where enforcement is being sought. Even in a developed legal jurisdiction such as England, public policy has been described as a “very unruly horse” and its scope is notoriously difficult to define. This can be particularly problematic in jurisdictions where the courts are protective of domestic parties. Furthermore, outside of enforcement regimes arising from conventions or treaties, the process of seeking the recognition and enforcement of judgments can be technical, time-consuming and expensive.
Akyurek: Issues concerning the enforcement of judgments between Member States are governed by EU regulations including the Council Regulation of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, also known as Brussels I Regulation, which provides fast enforcement proceedings. Judgments which fall into the scope of the Brussels I Regulation are recognised ipso jure in other Member States through a simplified procedure so as to obtain a declaration of enforceability. Hurdles may arise when a party seeks to enforce a judgment in a foreign country where no bilateral treaty, dealing with the reciprocal recognition and enforcement of foreign judgments, has been signed. Under these circumstances, enforcement may be denied, especially in case of non-compliance with public policy or lack of jurisdiction of the foreign court. Enforcement of arbitral awards is, in theory, easier than enforcement of court judgments thanks to the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards signed by 150 countries. However, in practice. difficulties enforcing arbitral awards may arise in countries known to be unfriendly to arbitration. In those countries, it may be difficult to obtain the enforcement order from the judiciary and enforcement may sometimes be blocked on the grounds that the award would breach public policy rules.
Jones: Common grounds upon which arbitral awards are challenged are breach of natural justice, breach of public policy and non-arbitrability – that is, the subject matter of the dispute is not one that is able to be settled by arbitration. In Australia, since TCL Air Conditioner v The Judges of the Federal Court of Australia, it is clear that a breach of natural justice will not act as an impediment to the enforcement of a foreign award unless a real unfairness in the resolution of the dispute has resulted from the breach. An Australian court may refuse recognition or enforcement of an arbitral award if the court finds the award is in conflict with public policy per Article 36 of the UNCITRAL Model Law on International Commercial Arbitration as adopted in Schedule 2 of the International Arbitration Act 1974 (IAA). The recent Federal Court decision of Emerald Grain Australia Pty Ltd v Agrocorp International Pty Ltd affirmed this proposition. When determining whether to set aside an arbitral award, the court demonstrated that it should give effect to the policy of the IAA to uphold arbitral awards and a decision that the award breaches public policy requires clear evidence to this effect.
Woodland: Judgment debtors seeking to resist enforcement of a judgment or award in a foreign jurisdiction will typically try to frustrate enforcement in a number of ways. First, it is often argued that there was some procedural defect in the judgment or award – for example, the proceedings were not properly served or the tribunal was not correctly appointed – such that it should not be enforced. Secondly, defendants may argue that the judgment is contrary to public policy, for example where the class of damages is not recognised in the enforcement state. Finally, a defendant may try to re-litigate the substantive dispute and assert that the judgment or award is wrong. The growing trend toward mutual recognition and enforcement of judgments and awards means that this line of attack is increasingly difficult to argue successfully.
FW: Have you seen any legal and regulatory developments in the past 12-18 months, with implications for enforcing judgments or awards in other jurisdictions?
Jones: The recent landmark case of TCL Air Conditioner has confirmed the strong pro-arbitration stance of Australian courts in giving effect to international arbitral awards. The High Court of Australia made it clear that an appeal to set aside an arbitral award pursuant to a breach of natural justice will not in itself suffice to have the decision quashed, unless it can be demonstrated that real unfairness in the resolution of the dispute has occurred. Amongst other grounds of appeal raised by the appellants, the alleged breach of the hearing rule by the arbitral tribunal did not suffice to establish that a real practical injustice had occurred. The implications of this case are that Australian courts will give full and final effect to foreign arbitral awards. The decision attests to the commitment of Australian courts in protecting the finality of arbitral proceedings, and signifies a positive future for enforcing foreign judgments in Australia.
Akyurek: European Parliament and European Council adopted the EC No 1215/2012 European Regulation on jurisdiction, recognition and enforcement of judgments in civil and commercial matters on 12 December 2012, aimed at amending and simplifying the current system set up by the Brussels I Regulation. The EC Regulation will come into force between Member States on January 2015. From this date on, recognition and enforcement of judgments issued in a Member State will be recognised in another Member State without any special procedure being required. This European reform will have a major impact on the enforcement of judgments in EU jurisdictions. As for the enforcement of arbitral awards, the situation tends to improve year after year given the continuous spread of the New York Convention – recently signed by countries such as Gabon, Burundi, Iran and Myanmar – and the modernisation of arbitration legislation, especially in developing countries. In 2012, Saudi Arabia adopted a modern arbitration law followed in 2013 by a new law on enforcement of foreign judgments and awards.
Woodland: The prospect of enforcing judgments or awards in foreign jurisdictions is very country dependent. Whilst I think there has been a general trend towards making judgments, and particularly arbitral awards, easier to enforce across the board, different jurisdictions are developing at different rates. Efforts by some jurisdictions – notably Dubai and Singapore, but also countries such as Malaysia and Mauritius – to become arbitration centres will continue to improve the prospects of arbitral awards being enforced, and this is likely to have a knock-on effect on Court judgments.
Menshenina: It is fair to say that recently there has been a distinct tendency for courts in jurisdictions seeking to develop the attraction of their dispute resolution services to restrict public policy challenges to the enforcement of foreign judgments and awards. A notable example of this trend is in Russia, where public policy objections had frequently been raised to prevent the enforcement of foreign judgments and awards. Guidance was issued by the Presidium of the Supreme Arbitrazh Court of the Russian Federation to restrict the use of the public policy exception. That said, the practical effect of this guidance is still open to doubt. Another recent trend has been challenges to judgments based on the alleged unfairness of an asymmetric jurisdiction clause, where one party only is given an option to decide on the jurisdiction in which to commence proceedings, or whether to arbitrate or litigate.
FW: What treaties and conventions exist to facilitate the cross-border enforcement of judgments and awards? How difficult is it to enforce a judgment or award in a foreign state with which there is no treaty, and how does this process work?
Woodland: In the arbitration world, there is of course the well-known New York Convention, to which 150 countries are now signatories. Within Europe, the Judgments Regulation and the Lugano Convention regulate the enforcement of court judgments. There are also many bilateral treaties between individual countries. Enforcing a judgment – or, more rarely, an award – outside these mechanisms generally depends on the principles of comity and reciprocity and is undoubtedly more difficult. Precisely how difficult depends on the particular jurisdiction, but there are some countries where it is far from certain that judgments will be enforced.
Menshenina: As far as English judgments are concerned, there are essentially three different ways in which judgments can be enforced abroad – through multilateral convention, bilateral treaties and ad hoc procedures. As to multilateral conventions, there are the accelerated enforcement procedures provided for in the Brussels Regulation or Lugano Convention which provide for the automatic enforcement of judgments once certain basic prerequisites are satisfied. The second is through bilateral treaties that are in place between England and various other jurisdictions, mostly Commonwealth and former Commonwealth territories. The advantage of these conventions and treaties is that there is no need to take fresh proceedings in the enforcement jurisdictions. Finally, in jurisdictions not within the remit of the above, judgments may be enforced by bringing fresh proceedings, perhaps combined with an application for summary judgment, but there is less certainty and predictability in this process. As to arbitration awards, there is more uniformity as a result of the widespread applicability of the New York Convention on the Recognition and Enforcement of Awards, which provides an expedited procedure for the recognition of awards, subject to public policy exceptions. If there is no treaty or any other arrangement for the enforcement of judgments or awards, generally it will be necessary for the claimant to bring fresh proceedings in the relevant jurisdiction and take advantage of any provisions that might exist for summary judgment relying on the existing judgment or award.
Akyurek: Recognition and enforcement of judgments issued in a Member State are governed by the Brussels I Regulation. Regarding recognition and enforcement of judgments handed down in third countries, difficulties should be assessed through the existence, or not, of bilateral treaties entered into between the country where the judgment has been issued and the country where enforcement is sought. In cases where no multilateral or bilateral treaty has been signed, the success of enforcement will mostly depend on how effective the foreign national legal system is and what degree of importance is granted to the respect for the rule of law. By way of comparison, French courts will apply the Cornelissen case law which requires that a foreign judgment meets the following three requirements: first, the jurisdiction of the foreign court; second, that the parties have not seized a foreign court in order to defraud otherwise applicable rules; and third, compliance with international public order.
Jones: The Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, also known as the New York Convention, facilitates the cross-border enforcement of arbitral awards between its signatory states. The worldwide ratification of the convention by about 150 nations has made an extraordinary contribution to globalising the arbitration process. The convention has enhanced the arbitral process as it permits flexibility when choosing the seat of an arbitration, without compromising the enforceability of awards. Nations have given effect to the convention by adopting or incorporating its provisions into their domestic legal frameworks. Australia as a signatory to this convention has adopted its provisions under section 8 of the IAA. However, a nation’s failure to ratify a treaty or convention does not in itself preclude the enforcement of a foreign award in that nation. An arbitral award’s enforceability will be dependent upon the available legal frameworks established in a nation’s domestic law that are able to give effect to such awards.
FW: Could you comment on any recent cases in which enforcing a judgment or award has proved problematic? How was the issue resolved, and with what outcome for the parties?
Akyurek: Enforcement of judicial decisions proves to be problematic when facing the issue of fundamental rights and particularly the fundamental principal of a fair trial. In 2012, the French Supreme Court denied the enforcement of two Californian judgments on the ground that these judgments were not consistent with international public order. This outlines the fact that difficulties enforcing foreign judgments may arise even when the two countries involved have advanced legal systems, such as France and the US. In terms of arbitration, in 2012 and 2013, courts in Qatar rejected the enforcement and annulled arbitral awards on the grounds that the award did not state that it was rendered “in the name of the Emir”. Fortunately, this approach seems now to have been abandoned by the Qatari courts. On the other hand, courts in some jurisdictions support the enforcement of arbitral awards. In one of the chapters of the Yukos saga, an award was rendered in Moscow against Rosneft. The award was annulled by the Russian courts. Nevertheless, Yukos Capital managed to have the award recognised by the Dutch and English courts and enforced on assets located in the Netherlands and the UK. Recognition of foreign awards that have been successfully challenged and annulled in their original seat can nevertheless be enforced in some arbitration-friendly jurisdictions.
Jones: In some circumstances, public policy can prove to be an obstacle to the enforcement of an award. In Australia, under Article 36(2)(b)(ii) of the UNCITRAL Model Law, a court can refuse recognition of an arbitral award on the ground that the award is contrary to public policy. The public policy which is to be applied in making this determination is that of the state in which enforcement is being sought. The public policy of Australia in relation to refusing enforcement of awards was explored in the recent case of Traxys Europe Sa v Balaji Coke Industry Pvt Ltd. The Federal Court of Australia in that case concluded that awards should be set aside only where their enforcement would “violate the forum state’s most basic notions of morality and justice”. The court therefore adopted a restrictive view of public policy with respect to the enforcement of foreign awards, in line with international authority which adopts the same line of reasoning. This approach reflects the current position taken to public policy in Australia and a unified international mindset. The outcome in Traxys was the Court’s rejection of the numerous public policy grounds upon which the respondent relied to resist enforcement of the award. The stringent requirements for non-enforcement on public policy grounds were not made out.
Menshenina: Innovative techniques for enforcing English judgments abroad were developed in the Masri line of cases which has since been applied in the Ablyazov litigation. In summary, in the Masri cases, the English court appointed a receiver to collect the assets of the judgment debtor abroad. This proved very effective as a means of indirect enforcement. Those techniques have been further developed in the Ablyazov litigation in enforcing an English judgment against the assets of the defendant located worldwide. Coupled with the power of the English court to hold in contempt those who seek to frustrate the enforcement of judgments, this has proved an effective way to enforce English judgments without the need to have the judgment enforced directly in the foreign jurisdiction.
Woodland: There have been two recent cases in London involving the enforcement of Russian judgments – the Aeroflot v Berezovsky case and the JSC VTB Bank case against Mr Skurikhin. In each case, the claimant had obtained a judgment from the Russian court which they sought to enforce in England. Because Russia is not subject to the Judgments Regulation, nor a party to the Lugano Convention nor any bilateral treaty with England, the claimants had to rely on the common law method of enforcement. This involves issuing new proceedings in London and applying for summary judgment on the basis of the Russian judgments. In Aeroflot, the High Court initially dismissed the claim, finding that the principle of finality had been breached. However, the Court of Appeal has overturned this decision, and so the issue will proceed to a full trial. In JSC, the claimant was mostly successful in defeating the defendants’ arguments as to why the Russian judgment should not be recognised. However, the court held that some parts of the Russian judgment could amount to a penalty, and therefore contrary to public policy. Again, this issue will proceed to a full trial should JSC wish to pursue enforcement of this part of the judgement.
FW: In your experience, do the issues surrounding enforcement become more complicated depending on the method used to resolve the dispute – for instance, if the parties have sought a judicial resolution rather than arbitration?
Menshenina: Enforcing judgments can be more problematic than arbitration awards, at least outside the scope of multinational conventions and bilateral treaties. Enforcement will then be dependent on the particular requirements of each jurisdiction which can be technical and complex, with the outcome uncertain. By contrast, by far the majority of jurisdictions are signatories to the New York Convention, which results in a more standardised approach to enforcement of arbitration awards, albeit subject to a public policy exception which can still hinder effective enforcement.
Woodland: It is generally accepted that arbitration awards are likely to be easier to enforce, provided that the country in which enforcement is to take place is a signatory to the New York Convention. Since 150 countries are signatories to the New York Convention, in the majority of cases it should – in theory at least – be straightforward to enforce an arbitral award. In practice, it is sometimes not quite as simple as that. There remain certain countries which are resistant to enforcing arbitration awards, although it is becoming less and less common. In those countries it may be easier to enforce a Court judgment, but that is entirely dependent on the system in place in the jurisdiction where enforcement is being sought.
Jones: There exists ample machinery in pro-arbitration states by which to enforce a foreign arbitral award. Australia, as a nation that has ratified the New York Convention and the UNCITRAL Model Law, provides two avenues by which to enforce a foreign award. The first is to seek enforcement in accordance with the provisions of the Foreign Judgments Act 1991 (FJA). Registration of a foreign award under the FJA enables a party to seek recovery and enforcement of the award in the same manner as a judgement or order by that court. A second avenue for enforcing foreign awards in Australia utilises Article 35(1) of the UNCITRAL Model Law. Article 35(1) relevantly provides that “an arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36”. It can therefore be said that the process of enforcing a foreign arbitral award is not a complicated one, and is made simple and efficient by the legal frameworks through which enforcement is pursued.
Akyurek: Resolving cross-border disputes through arbitration is not only more appropriate, but allows easier enforcement of the arbitral decision in other jurisdictions. Enforcement of a judgment is complicated in the absence of a bilateral treaty between the country in which the judgment was rendered and the country in which enforcement is sought. The US, for instance, has not signed any bilateral or multilateral treaty for the enforcement of foreign court judgments. Consequently, a US court decision might be examined de novo in the country where enforcement is sought, and vice versa. No such obstacles exist for arbitral awards thanks to the New York Convention of 1958, pursuant to which recognition and enforcement should be granted subject only to minimal scrutiny of the foreign award. However, this advantage on favouring arbitral awards might be overturned in unfriendly jurisdictions.
FW: For certain types of disputes, what challenges can arise from ‘forum selection’ clauses, where the lender alone has the option to choose between foreign litigation and arbitration, while the borrower is limited only to arbitration? How can such clauses complicate the enforcement of judgments and awards?
Jones: A forum selection clause of the kind described constitutes a unilateral option to arbitrate a dispute. It is well settled under English law that a unilateral option to arbitrate is valid and operative, and therefore enforceable by the courts. The English Court of Appeal in Pittalis v Sherefettin gave a particularly strong vindication of this position, holding that there was no requirement of mutuality for a clause requiring or allowing an election for arbitration. On this authority, the existence or exercise of a unilateral option to arbitrate will not pose a threat to the enforcement of an arbitral award. While this is the position in English law, it must be understood that the laws in other jurisdictions are by no means in agreement on this point. The Russian Supreme Arbitrazh Court reasoned quite differently in RTK v Sony Ericsson, taking the view that a unilateral option to arbitrate violates the right to equal access to justice.
Akyurek: In some jurisdictions, including France, the issue regarding the so-called ‘one-sided optional arbitration clause’ in contracts, usually concluded with banks, only arises in cases where the contract is considered to be a ‘consumer contract’, as this option is part of the protection offered to consumers – as opposed to professionals – considered to be the weak party that needs to be protected. Such a clause may not automatically be considered null and void except if it creates a significant imbalance between the rights and obligations of the parties to the contract, to the detriment of the non-professional or the consumer. However, the abusive nature of the ‘one-sided optional arbitration clause’ contained in consumer contracts is only a presumption. In some jurisdictions, the consumer bears the burden of proof to establish that the clause creates significant imbalance.
Woodland: In straightforward cases, there should not be any complication – at least under English law. If the claimant is the lender, they will elect between litigation and arbitration and the dispute will proceed accordingly. Similarly, if the claim is brought by the borrower the dispute will be dealt with by arbitration. Complications can, however, arise where there are cross-claims. For example, imagine that the lender brought a claim and elected litigation but the borrower pursued a counter-claim. The counter-claim would have to be dealt with by arbitration. If both the claim and the counter-claim were successful, the lender would be seeking to enforce a Court judgment and the borrower an arbitral award. This may lead to one party having a greater prospect of being able to recover their damages. There may also be an issue as to whether it is permissible to set-off the Court judgment against the arbitral award.
Menshenina: These asymmetric problems have recently proved to be problematic. Court decisions in Russia and France in particular have questioned the enforceability of such clauses against the party that does not have the option to choose whether to arbitrate or to select the jurisdiction, albeit that in other jurisdictions, such as England, such clauses have been enforced. Accordingly there is a real risk that if such a standard is included in a contract, enforcement of any judgment or award in due course may be frustrated by public policy objections as to the validity of the clause. The better choice may now be to avoid these clauses, at least where enforcement might be sought in jurisdictions where a party can raise such public policy objections.
FW: In cases where a foreign judgment is rejected, what options are available to the plaintiff to challenge the decision? In your experience, is success in such circumstances likely?
Woodland: In those circumstances where a foreign judgment is rejected, and assuming it cannot be enforced elsewhere, the plaintiff can take one of three steps. First, it could challenge the decision to reject the foreign judgment in the jurisdiction in which it is seeking to enforce, by way of an appeal or review. Secondly, the plaintiff could seek to remedy any defect in the foreign judgment which caused its rejection. For example, if the plaintiff was seeking to enforce a default judgment but the country of enforcement did not recognise such judgments, the plaintiff could seek a judgment on the merits. Finally, the plaintiff should consider whether it could issue substantive proceedings in the country it had wished to enforce the foreign judgment. Although this would mean re-litigating the issues, this is probably the most effective solution if enforcement of a foreign judgment is rejected, provided that the plaintiff was not barred from doing so by, for example, an exclusive jurisdiction clause.
Akyurek: A party seeking enforcement of a judgment which has been declared unenforceable by a French court can challenge this decision. According to French law, the plaintiff may lodge an appeal against the court decision rejecting the enforcement before the President of the Tribunal de Grande Instance, a Regional Court, pursuant to Article 509-7 of the French Civil Procedure Code. However, in most cases, appeal courts rarely quash judgments of first instance, particularly where the first instance court considers that the foreign judgment is in breach of French Public Order Policy.
Jones: The FJA provides a framework for the registration of foreign judgments in Australia. In the event that a foreign judgment is not registrable under section 7 of the FJA, there are other avenues to challenge and thereby enforce the decision. One option would be a bilateral treaty which enables the judgment to be enforced. In Australia, the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters 1994 with the UK and the Trans-Tasmania Proceedings Act 2010 with New Zealand, are two examples. Alternatively, in the absence of a treaty, the common law is likely to aid the enforcement of a money judgment in Australia. The success of these approaches will ultimately depend on the satisfaction of the relevant criteria and must be determined on a case-by-case basis.
Menshenina: Whether there are options available to challenge the rejection of a foreign judgment is a matter for the jurisdiction concerned. Normally there is a right to appeal a first instance decision and of course that will lead to further delay, which may itself frustrate the purpose of enforcement.
Doug Jones AO is an internationally recognised infrastructure and dispute resolution lawyer. Acting for owners (both government and private sector), financiers, contractors, consultants and subcontractors, Mr Jones has advised extensively on project structuring and financing, contract drafting and advice during project implementation and dispute resolution for major infrastructure matters, including Department of Defence facilities and equipment acquisitions, airports, ports, roads and rail projects throughout Australia, New Zealand, Europe, Asia, the Middle East and the US. He can be contacted on +61 2 9353 4120 or by email: firstname.lastname@example.org.
Practicing in the area of commercial litigation, Ozan Akyurek assists clients on all issues relating to product liability, industrial risks, business torts, anti-corruption and white-collar crime. He advises international clients in issues related to litigation and pre-litigation case management before French civil and criminal courts. Mr Akyurek is active in diverse industry sectors, including aviation, automotive, IT, transportation and logistics, as well as steel, packaging and retail. He can be contacted on +33 1 5659 3821 or by email: email@example.com.
Jason Woodland is special counsel in the Commercial Litigation, Civil Fraud and Asset Recovery Department. He specialises in heavyweight commercial litigation and arbitration often involving allegations of fraud, breach of fiduciary duty and constructive trusts. Mr Woodland has particular expertise in obtaining and defending applications for freezing and search orders and other emergency interim relief, tracing and recovering the proceeds of fraud and enforcing foreign judgments in England. He can be contacted on +44 (0)20 7822 7777 or by email: firstname.lastname@example.org.
Tatiana Menshenina is an experienced commercial litigator with market-leading experience in complex cross-border disputes. She has worked on a range of high profile cases for both corporates and high net worth individuals. Prior to joining Simmons & Simmons she worked over eight years at a Russian law firm with offices in Moscow and London as a partner and advocate. Ms Menshenina is qualified as a Russian Advocate is a Solicitor of England and Wales. She can be contacted on +44 (0)207 825 4593 or by email: email@example.com.
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